Silver has started the new year in strong shape after ending the final quarter of 2022 with a sustained recovery, as its strong fundamental case finally had a chance to be heard.
But, what are silver’s prospects for 2023? How strong is the investment case for the precious metal? And what are the options for an investor looking to increase their exposure to silver?
This guide will answer all these questions and provide a comprehensive analysis of the opportunities and aspects to keep in mind for investing in silver this year.
Will silver be a good investment in 2023?
While nothing is ever certain in the world of finance, silver looks in as strong a position as any asset class at the start of 2023. In a world still mired in confusion and uncertainty amid concerns of a global recession as well as the continued geopolitical risks, silver’s burgeoning demand across its range of sectors makes it better placed than most to shrug off these significant headwinds facing equities after a tough 2022.
This optimistic outlook for silver is predicated on the metal’s role as a key component within two of the major industries of our times, the energy transition and the technology revolution. Silver is used in photovoltaic cells for solar energy while its conductivity has made it widely used in electronic applications, including in batteries for electric vehicles and as part of the global rollout of 5G technology.
Demand for silver in 2022 is likely to have been at an all-time high at more than 1.2 billion ounces, according to the Silver Institute, driven by the industrial applications mentioned above but also from increased demand from the jewellery and investment (coin and bar) sectors.
With the shift to solar, and other renewable sources of energy, only set to increase in the coming year as governments struggle to achieve their 2030 climate goals, silver’s demand prospects remain rosy in 2023. Indeed, another deficit is likely as even though output from mining is expected to increase this year, it is unlikely to be able to keep pace with the surge in demand.
Furthermore, despite silver’s bullish run, which has seen it rise from its September low of below $18 an ounce to now be trading around $24 an ounce, the price of silver still remains some way off its high of 2022, even though the fundamental outlook has strengthened considerably since then.
Silver therefore still has plenty more upside potential with a strong demand case supporting it.
What happened to the price of silver in 2022 and before?
Yet despite this optimistic and bullish outlook for 2023, what happened to the price of silver over the course of 2022 is a salutary reminder to all investors that silver doesn’t simply trade based on its supply and demand fundamentals. The metal is highly exposed to the actions of central banks, in particular the US Federal Reserve, and the relative strength of the US dollar, in which the metal is typically priced in.
A promising start to 2022 in which the price climbed from $22 an ounce to above $26 an ounce at its peak in the first quarter of the year was quickly reversed once the Federal Reserve announced it was taking an aggressively hawkish stance to try and tackle persistently high inflation. As the US central bank implemented a series of interest rate hikes over the following months, the price of silver endured a multi-month slump with the investor appeal for silver diminishing with its lack of yield making other interest-paying assets more attractive instead.
From April onwards, every macroeconomic indicator or comment from a Fed official seemed to be a fresh reason to hit silver, resulting in its price sinking to below $18 an ounce at the start of September 2022. However, a slight reappraisal in investors’ views on how much longer the Fed, and other central banks around the world, would keep up their hawkish stance provided silver with the breathing space it needed for its strong fundamental case to finally gain attention.
As investors woke up to the insatiable demand from the solar industry for silver, the metal’s price climbed steadily over the final quarter of the year resulting in silver achieving a small annual gain over the course of 2022 – something that was harder for silver investors to imagine during the summer months.
Zooming the lens out further than last year, silver has broadly traded within a $15 dollar range from the low teens to under $30 an ounce for the last decade or so. Even the famous silver squeeze of early 2021 didn’t shift silver’s price out of this range. Silver’s all-time high was achieved in 2011 when the price climbed to $49.51 an ounce before swiftly falling back. While that kind of level still looks a long way off, the fundamental setup means that a fresh climb to challenge $30 an ounce in 2023 shouldn’t be ruled out.
Different ways to invest in Silver
If silver does indeed post a year of gains in 2023, how can an investor gain exposure? Broadly speaking, there are two ways of investing in silver: physical holdings and financial instruments.
With silver’s price lower compared to its precious metal peer, (an ounce of gold is trading for about 80 times the price of an ounce of silver) the metal represents a much lower cost barrier to entry.
Buying silver bars or coins are often an investor’s first step in holding the precious metal. These can easily be bought and sold via reputable dealers with the price simple to track as it will broadly reflect the spot price of silver at the time. Kinesis recently launched its own range of silver coin and bar products, which are available to purchase at the Kinesis Bullion store.
For those deciding against physical ownership, exchange-traded funds (ETFs) can offer investors the chance to have exposure to the silver price. These funds track the price of silver, less a small commission fee, with the digital nature of the product meaning that investors can buy or sell at any point rather than having to find a suitable dealer.
Kinesis has created a product to bridge these two investment worlds. Its digital silver currency, KAG, offers the security of a physically-backed product with the simplicity of an online, easy-to-trade asset. Each KAG is backed by one ounce of fine silver stored in fully insured and audited vaults, in the investor’s name.
In addition, KAG enables holders to spend physical silver, anywhere in the world via the Kinesis Virtual card, with the added bonus of paying holders a monthly yield based on transactions carried out using KAG over the preceding month.
KAG takes all the positives that holding silver offers and takes away the negatives as an inflation-busting, easy-to-use digital currency freed from the machinations of central banks.
Price forecasts for 2023
While our outlook for silver is very favourable for 2023, with every reason for the recovery that silver ended 2022 on set to continue long into this year, how do other silver analysts see the year playing out?
Banking behemoth HSBC is much more cautionary on silver, stating in a recent report that “despite the recent bounce in commodity prices, we do not expect Gold and Silver to outperform in the coming months.”
Manufacturer Heraeus sees silver trading within a similar range this year as last year, forecasting the low for the year to be $17 an ounce and the high at $25 as the strength of the US dollar offsets the continued growth in demand from photovoltaics and the continued rollout of 5G-enabled smartphones.
On the other hand, many analysts remark that the outlook is “strongly bullish”, with a source projecting a 2023 forecast for silver at $34.70 based on the US dollar having peaked.
Ultimately, it is up to the individual investor to decide if silver is the right fit for their portfolio. And for those that decide it is, then Kinesis offers the perfect combination of silver fit for the modern age, combining the best aspects of physical or digital metals investment.
Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.